Chapter 29 - The A-share market is crashing!

There are two types of position locking: profit locking and loss locking. "When the market moves in the opposite direction to your open position, you open a new position that offsets the original one—hence it is also called hedging." "The main purpose of position locking is to deal with potential trend reversals during intraday trading. It allows you to keep your positions in an optimal state at the lowest possible cost." In the kitchen, Lu Liang was making breakfast while continuing to deepen his understanding of the trading rules of the London Bullion Market. Going long and short were easy enough to grasp, but position locking was a strategy he had never encountered before. On the surface, it sounded like a tool to help investors reduce risks and avoid losses appropriately. Yet he couldn't shake the feeling that position locking should be used as a profit-making tactic, rather than a routine remedial measure. The explanations were too vague, though. Lu Liang knew he would have to try it out in practice to truly understand how it worked. Suddenly, the electric curtains slid open slowly, and the patter of footsteps echoed from the end of the hallway. "Brother Liang, why are you up so early? Didn't we agree I'd make breakfast for you from now on?" Li Manli stumbled in, still half-asleep, wearing a pink bear-patterned pajama set and fluffy rabbit slippers whose ears perked up with every step she took. Lately, with nothing much to do, she'd been scrolling through a video-sharing platform and had suddenly gotten the idea to become a food vlogger. Lu Liang was happy to see her pursuing her own interests, so he'd bought her a full set of filming equipment and told her to go for it. Now Li Manli wasn't just the housekeeper—she'd also taken on the role of part-time chef, handling all of Lu Liang's three daily meals. Her cooking skills left much to be desired, but Lu Liang didn't have the heart to dampen her enthusiasm. Who knew? If she had a knack for it and became a big internet celebrity, he'd feel quite a sense of accomplishment. "Just finished up some work, and I had nothing better to do," Lu Liang replied. After breakfast, he walked over to the bar counter and brewed himself a cup of extra-strong black coffee, trying to keep his energy levels high. Who knew how long he'd be busy today? It could be a blitzkrieg, or it could turn into a war of attrition. Either way, he needed to fuel up as much as possible before the big battle began. Li Manli's mouth dropped open in surprise. "You didn't get any sleep at all last night?" "No need to call me for lunch either—I'll come out when I'm hungry," Lu Liang smiled, gently pushing her chin back up before heading back to his study. Three monitors sat on his desk: one displaying the Shanghai stock market, another showing the London Gold price, and the third dedicated to browsing news and financial updates. In the blink of an eye, it was 9:30 AM—the opening bell for China's stock market. The market opened 0.57% higher, with the Shanghai Composite Index hitting 5,150.12 points. It was another sea of red across the board; looking at the market, only a handful of stocks were trading in the green. One of them was Chinese Online, which opened 3.55% lower—a brutal blow to the retail investors who had chased the price higher the previous day. As time passed, a steady stream of small-capital investors began pouring into the market. This signaled that retail traders were extremely confident in the market's future prospects. They firmly believed Chinese Online would become the next Baofeng Technology—the second "monster stock" of the year. They also held out hope that the stock would surge violently during intraday trading; if it hit the daily limit-up, the total gain for the day would reach 13.55%. "Your last chance to escape, and you're still delusional enough to think institutions will lift the price for you," Lu Liang sighed, turning his attention away from the stock. Because something unusual was happening in the London Gold market: during the normally quiet Asian trading session, the price had suddenly dropped 5 basis points. If Lu Liang hadn't held 960,000 US dollars in margin—enough to absorb sharp market fluctuations—he would have almost certainly been forced to liquidate his positions. "Could it be starting already?" Lu Liang frowned, his eyes fixed on the steady, unwavering Shanghai Composite Index. He hesitated for a moment, then rearranged his account holdings. Given the large amount of capital he had invested this time, Lu Liang decided to reduce his leverage from the previous 400 times to 200 times. His account now held a total of 1.13 million US dollars, with 630,000 US dollars set aside as margin. The remaining 500,000 US dollars, when leveraged, ballooned to 100 million US dollars. Lu Liang was confident in his judgment: the catalyst for the gold price surge would be a crash in China's A-share market, as capital fled to the international gold market in search of safe-haven assets. But the A-share market operated on favors and unspoken rules. Even if someone received advance information, they couldn't show any sign of knowing before the official documents were released. It was like those times when a "policy-driven stock" would hit the daily limit-up the very second a government document was issued. The London Gold market, however, operated without such constraints. This sudden, unexpected movement was a sign. Lu Liang was ready to take a gamble. His capital reserves weren't large enough to compete with the big players—so he had to make his move first to secure the lowest possible entry price. If he waited until the market trend was fully underway to react, it would be far too late to buy in at a low price. Lu Liang opened his position at 1,365.2400 US dollars per troy ounce. Each standard lot cost 13,652.4 US dollars. He bought a total of 732 contracts, worth a combined 99.918 million US dollars—nearly going all-in. At the current price of 1,365.2400 US dollars per troy ounce, a 1-point increase in the integer part of the price would earn him 9,076 US dollars. Lower leverage meant lower returns, but it also meant a higher margin of error. He could now withstand an instantaneous drop of 17 basis points. As time ticked by, the London Gold price climbed steadily, inching up to 1,365.7400 US dollars per troy ounce. By 10:00 AM, Lu Liang had made a profit of 4,538 US dollars—but his account was still showing a floating loss of 12,962 US dollars. This was because leveraged trading required a minimum 3.5% handling fee, and the higher the leverage ratio, the higher the fee. Fifteen minutes later, the Shanghai stock market took a sudden nosedive. The slow bull market had its horns abruptly cut off. After opening 0.57% higher and climbing to 0.95% during intraday trading, the index suddenly plummeted 1.89%, turning from red to green in the blink of an eye. In just a few dozen seconds, 1.34 trillion yuan in capital fled the A-share market—whose total market value stood at 712.5 trillion yuan. And this was just the beginning. A piece of news broke on stock forums and quickly spread across the entire internet. At 10:15 AM, the authorities issued an official document. Relevant departments launched a crackdown, shutting down 12 illegal private margin lending firms, urging major brokerages to standardize their operations, and promulgating the New Ten Articles of the Securities Law. The Shanghai Composite Index crashed in response. The forced liquidation of positions by the illegal margin lending firms flooded the market with stocks. "Fuck! My account's been frozen!" "Run! The stock market crash is here!" The stock forums erupted in chaos, and financial industry insiders were left in shock. Over the past four months, the Shanghai Composite Index had skyrocketed from 3,000 points to its peak of 5,178 points. The A-share market's total capitalization had increased by nearly 20 trillion yuan—a feat largely thanks to margin lending firms of all sizes across the country. Previously, margin lending had existed in a gray area; while technically illegal, the authorities had turned a blind eye. Now, with this sweeping crackdown on top margin lending firms, the order to standardize brokerages, and the implementation of the New Ten Articles, there was no doubt about it: The A-share market is crashing! Institutions were liquidating their positions, hot money was fleeing, and retail investors were following suit in a panic. The entire market looked like a scene from the apocalypse. Lu Liang's heart raced with excitement. He paid no further attention to the Shanghai Composite Index, his eyes fixed firmly on the London Gold market. The moment the official document was issued, the London Gold price surged 21 basis points, with a flood of capital pouring in. As time went on, the price began climbing at a breakneck pace, changing almost every second. The unusual movement during the Asian session had attracted speculators from across the ocean, driving the gold price even higher. By 12:00 noon Beijing time, the rate of increase in the London Gold price had gradually slowed. In just 80 minutes, it had skyrocketed 47.39 basis points, stabilizing at 1,412.6300 US dollars per troy ounce. The international gold price had broken through 45 US dollars per gram, equivalent to 288 yuan per gram—a 10-yuan increase per gram. It was clear that investors going long on gold had no intention of letting the rally end there. News of the gold price surge spread to every corner of the globe. In China, for example, financial experts of all stripes jumped at the chance to grab the spotlight. First, they expressed their support for the government's efforts to regulate the financial market, while lamenting the A-share market's disastrous situation. Then, they offered their analysis: the trillions of yuan fleeing the stock market would likely flow in two directions. First and foremost, the real estate market. Housing prices would continue to rise in the future—if you didn't jump on the bandwagon now, it would be too late. Second, gold. Besides real estate, the gold market was the only one large enough to absorb such a massive amount of capital. The opinion shapers were clever. They understood the government's motive behind regulating the financial market: to guide capital toward where it was needed most. Hence, their main message was to bull up the real estate market, encouraging people to invest in property. The surge in international gold prices was merely a side note. However, buying a house required a huge sum of money—often hundreds of thousands of yuan. Gold, on the other hand, could be bought in grams for just a few hundred yuan. The retail investors who had tasted success in the stock market now had a new target. Upon hearing the news, they began flocking to the gold market one after another. The complexity of trading London Gold didn't matter—they would just buy physical gold instead. Gold had unique properties: It was tangible and easy to hold. You couldn't go wrong buying it, and its price rarely dropped significantly. At the very worst, you could always melt it down to make jewelry for yourself, your children, or your parents. Overnight, Shuibei in Shenzhen—China's largest jewelry trading hub—faced a severe shortage of gold. The demand was so high that gold was almost impossible to find.